Shares in TUI Travel, the travel agent behind the Thomson holiday brand, were the FTSE 100's top performer as the group's major shareholder proposed a cost-cutting merger.

The company confirmed that talks were under way with TUI AG, which owns around 56% of Tui Travel, sending its shares up 11.1p (3.9%) to 292.5p – their highest level for almost three years. The bounce came after the market had long speculated that the two companies might look to merge.

In a statement, the London-listed company said: "Discussions are at a very early stage, but are on the basis that any such combination, if effected, would be achieved not by a reverse takeover but by means of a nil-premium all-share merger."

TUI Travel, Europe's largest tour operator, was formed in 2007 after the merger of TUI AG's travel agent business and Britain's First Choice. While TUI Travel holds the travel agent business, TUI AG also has hotels and luxury cruise operations as well as a stake in container shipper Hapag-Lloyd.

Ever since TUI AG decided in 2008 to shift its focus away from shipping and sell a majority stake in Hapag-Lloyd, its shareholders have been considering ideas of how to combine with TUI Travel to cut costs and pool resources.

Both groups currently have their own headquarters - in Hanover, Germany, and London respectively - although estimates on the potential savings a merger might yield vary wildly from more than €500m (£414m) to €100m.